This document discusses various trade and investment policies including barriers to trade such as tariffs, quotas, and standards as well as measures to facilitate trade like the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). It also covers US trade policies and efforts to promote exports and foreign investment through subsidies, tax incentives, and infrastructure development as well as special economic zones like Foreign Trade Zones.

1. Trade and Investment Policies
GEETA SHIROMANI
ASSOCIATE PROFESSOR

2. Trade and Investment
Policies.
Trade Barriers
 Tariffs
 Quotas
 Voluntary Export Restraint
 Monetary Barriers
 Standards
 Local Content Requirements
 Investment restrictions. (longer list on pg.82)
 Bureaucratic Hurdles 3

3. Trade Barriers.
Tariffs – taxes based on the value of imported goods and services. Usually
by product categories, sometimes countries. Revenue generating,
discourage imports of undesirable products, ‘level the playing field’.
Quotas – Restrictions on the number or monetary value of products that can
be imported, (sometimes market share). Usually product and country
specific.
Voluntary Export Restraint – Country specific. Usually under pressure and
severe threats. Designed to help domestic industries reorganize and
restructure. Not subject to any previous trade accords.
Monetary Barriers – exchange control, nonconvertible currency, differential
exchange rates. Usually balance of payment problems (developing
countries).

4. Trade Barriers.
Standards – Product specific. Health, Safety, Quality, Performance. Designed
to protect consumers but are often disguised barriers.
Local Content Requirements – Designed to aid domestic economy by
either increasing sales of local manufacturers or encouraging foreign
direct investment.
Investment Restrictions – Restrictions on the percentage of ownership of
local firms by foreign manufacturers. Designed to keep decision
making and ownership in local hands.
Bureaucratic Hurdles – Licenses, Testing, Certification, Buy domestic
campaigns, Boycotts etc.

5. Measures to facilitate
trade.
G.A.T.T. – General Agreement on Tariffs and
Trade – Part of W.T.O. after 1994.
Most Favored nation status – All members of
WTO have to be given similar trading privileges.
U.S. granted special status to China before it
was part of W.T.O.
W.T.O.
I.M.F. – Facilitates trade by regulating exchange
rates. Also gives loans and economic
advise/direction.

6. G.A.T.T.
 General Agreement on Tariffs and Trade – established in 1947
to facilitate trade - nondiscrimination, transparent procedures,
settlement of disputes and participation of developing
countries. From 1962 to reduce tariffs. No enforcement
powers and covered manufacturing and fuels.
 Main issues in the last round of talks in 1986-1994 were
agriculture, Textiles and apparel, services and intellectual
property. Also power to enforce policies and decisions.
 Developing countries concerned with opening developed country
markets for agriculture (subsidies) and textiles (quotas).
 Developed countries (mainly U.S.) concerned with services
(Govt. restrictions) and intellectual property (piracy).
 W.T.O. - This lead to the formation of the W.T.O. (World Trade
Organization) in 1994. GATS and TRIPS agreements to deal
with services and intellectual property.
 Video – From GATT to WTO

7. World Trade Organization
 149 countries (as of December 2005)
 Lower trade barriers, set rules governing trade
between its members, settle trade disputes, and
issue binding decisions. Video on WTO with examples of its work
 WTO website
 GATT became one of the agreements under WTO
 General Agreement on Trade in Services. (GATS)
 Trade related aspects of intellectual property
rights (TRIPS)

8. U.S position in world trade
- History.
 U.S. Multi-nationals the largest after WWII.
 Exports as well as direct foreign investments
 Controls imposed by Latin American, Asian, and
European Governments.
 70’s & 80’s competition from Japan and the
N.I.C.
 80’s U.S. Balance of trade problems.
 90’s U.S. expansion of trade in technology,
services, and intellectual property.

9. Balance of
trade/payments.
Important because it effects currency
values, domestic wages, employment,
inflation and the general economy.
Several measures to correct imbalance –
e.g., Omnibus Trade and Competitiveness
Act.; other export promotion efforts, and
foreign investment promotion efforts.

10. Omnibus Trade and
Competitiveness Act.
 Market Access - Non-Tariff barriers,
Government Procurement, Telecommunications
Market.
 Export Expansion - relaxed F.C.P.A. (Foreign
Corrupt Practices Act), easy export licenses,
financial assistance, and information.
 Import Relief - Anti-Dumping, Intellectual
property protection, temporary relief.

11. Export promotion efforts.
 Export information and advise.
(www.usatrade.gov)
 Production support.
 Marketing support.
 Finance and Guarantees - Export-Import Bank,
Agency for International Development, Overseas
private Investment Corp.
 Tax legislation.

12. Foreign Investment
promotion efforts.
 Subsidies (e.g., Mississippi $295 million package to
Nissan, Alabama 119 million to Mercedes, and 158
million to Honda, BMW in Spartanburg got $100,000 per
job created).
BMW Spartanburg Nissan Mississippi
Honda Alabama

13. Foreign Investment
promotion efforts.
 Financial – land or buildings, loans or loan guarantees,
new infrastructure.
 Tax Incentives – credits or rebates, depreciation
allowance, special deductions, tax holidays.
 Non-financial – Elimination of tariff and non-tariff
barriers, protection from competition through barriers,
Job training programs, protection from unions.
 Foreign Trade Zones (customs privileged facilities).

14. Foreign Trade Zones (Pg. 550-551)
Areas where goods can be
imported for storage and/or
processing with tariffs and
quota limits postponed until
products leave the designated
areas.
If goods processed and
exported than tariffs only
on value added.

15. Foreign Trade Zones (Pg. 550-551)
If goods processed and sold in the
country than tariffs only on parts
imported.
Located all over the world – more than
150 in the US.
http://www.igeo.ufrj.br/gruporetis/sistfin/mapas/mapaglobal.jpg

16. 1/30/2015
Advantages of Foreign
Trade Zones
Use of cheap labor or skilled workforce,
and local content without paying duties.
Lower tariffs for parts and
lower transportation and
insurance costs.
Stockpile products while
waiting for quotas or buyers.
No duties on rejected or
unsold products. Maquiladoras in Mexico